Many
know that a mortgage is a great way to buy a house. But, quite often,
many don't realize just how much a mortgage can drastically run up the
cost of owning that home.
If I told you that I would sell you
a $200,000 house for $364,813.42 you would never do it, but a 30 year
mortgage can run the purchase price of a house up $164,813.42 in
interest at 4.5% over a 30 year mortgage.
Just know, their are
ways to reduce that number that are simple and within reach. If you're
shopping for a mortgage, make sure you have the option of "PRE-PAYING
PRINCIPAL" without penalties. Let me show you how this works.
Let's start with a $200,000 mortgage with the first payment beginning
JANUARY 1st. Interest is loaded on the front of your mortgage, so your
early payments are predominately interest.
EXAMPLE:
Payment
one is $1013.37. Of that, only $263.37 is paid on the principal. The
remaining $750.00 is interest. On month 2, your second payment is
$1013.37 of which $264.36 is principal and $749.01 is interest.
So,
in two months, you have paid $527.73 in principal and $1499.01 in
interest. NOW, if you add the principal of the second month with your
first payment you can skip the interest on payment two. So, on JANUARY
1ST you would pay $1277.73. That eliminates $749.01 in interest from
your loan.
Now, in February, you would make payment 3.
Payment 2 has been paid with the January payment - minus the interest
which you won't ever pay. In February, if you paid the principal of
month 4, $266.34, you can skip the interest of $747.03.
In two
payments, you have reduced your overall mortgage costs by $1496.04 in
interest. If you repeat that every month throughout your mortgage, you
can radically reduce the overall interest costs of your mortgage. :)
